Ambassadors Group, Inc. (Nasdaq:EPAX), a leading provider of
educational travel experiences and online education research
materials, today announced its results for the first quarter ended
March 31, 2011.
Overview
- Total reported revenue of $1.7 million during seasonally slow
first quarter, as expected.
- Net loss of $8.7 million, or $0.48 per diluted share. Net loss
before special items of $8.4 million.
- Gross margin of 58.6 percent compared to 51.5 percent in first
quarter of last year.
- 2011 enrolled revenue for the Company's core product, Student
Ambassadors, up 4 percent year-over-year, largely offsetting
expected declines in other product offerings.
- Executed $5.4 million in share repurchases during the quarter
and paid quarterly dividend of $0.06 per share.
- Maintained a robust balance sheet with no debt
outstanding.
- On April 14, 2011, the Company reached an agreement to settle
the pending class action lawsuit for $7.5 million; amount covered
by insurance.
Financial Highlights
(in thousands except per share data)
|
|
|
|
UNAUDITED |
|
Quarter ended
March 31, |
|
2011 |
2010 |
Gross revenue, all travel programs |
$ 776 |
$ 2,339 |
Internet content and advertising revenue |
$ 1,003 |
$ 754 |
Gross margin, all travel programs |
$ 173 |
$ 949 |
Gross margin, internet content and
advertising |
$ 870 |
$ 644 |
Operating expense |
$ 14,478 |
$ 13,096 |
Net loss before special items |
$ (8,395) |
$ (7,027) |
Net loss |
$ (8,729) |
$ (7,489) |
Loss per diluted share |
$ (0.48) |
$ (0.39) |
"We entered 2011 with a keen focus on increasing revenue for our
2011 travel programs. We remain cautiously optimistic about
the travel season outlook. Our first quarter is typically our
seasonally slowest quarter of the year, and in turn contributes the
least to the Company's full year performance. While the first
quarter results were impacted by lower domestic program revenues as
expected, we are pleased with the progress we made in preparation
for the upcoming travel season," said Jeff Thomas, President and
Chief Executive Officer. "In total, we are slated to travel
approximately 25,000 delegates to 40 countries this year based on
current enrollment statistics. Our core product, Student
Ambassador Programs, continues to exhibit signs that the market has
stabilized. We have 5 percent more delegates enrolled in that
program compared to this same time last year. In addition,
participants' deposits overall are up 7 percent year-over-year as
of the end of the first quarter. Deposits are a leading
indicator of the likelihood to travel, and we believe this
validates the traction of our participant retention efforts that
have been a key focus for us.
"Global events continue to unfold both in Japan and the Middle
East. Unfortunately, the tragedies that have occurred in Japan
led us to suspend our travel programs there this
summer. However, we were able to swiftly re-route the majority
of these delegates to other destinations throughout the world and
retain them in our program. These actions were well received
by our families and demonstrate that our industry-leading safety
record and contingency planning provides our families the comfort
level necessary to move forward with the decision to
travel. Our commitment to delegate care and peace of mind
further differentiates our product offerings in the
marketplace."
Thomas continued, "While many industries have seen an
improvement in consumer discretionary spending, the stagnant
housing market, rising gas prices and the weak job market continue
to present a challenging operating environment in our core
markets. Our program results have not fully recovered from the
recent downturn, and the decision to travel on one of our
itineraries is a significant financial decision for our typical
delegate family. However, the value of the experience we offer
is very important and we see signs that the commitment to our
offering is still very strong. In the meantime, we are taking
proactive steps with both our delegations and our travel partners
to minimize the impact of financial hardship and cost pressures on
our business."
Thomas concluded, "We offer travel insurance, flexible payment
plans, and are doing our best to mitigate rising travel costs,
particularly airline fuel surcharges. Our program quality
continues to be excellent, evidenced by the superior Net Promoter
score achieved during the first quarter. We are confident in the
value of the educational travel experiences we provide and are
committed to increasing awareness of our programs, and in turn
delivering growth to our shareowners."
First Quarter 2011 Results
During the first quarter of 2011, the Company traveled 320
delegates compared to 803 during the prior year quarter. The
reduction in the latest quarter is primarily due to a general
decline in traveling on our Leadership and Citizen Ambassador
Programs.
Total revenue of $1.7 million declined 39 percent
year-over-year. The decrease in delegates traveled and
resulting travel-related revenue more than offset the 33 percent
increase in internet content and advertising revenue related to
BookRags, the Company's internet research business. Net loss for
the first quarter of 2011 was $8.7 million, or $0.48 per diluted
share, compared to a net loss of $7.5 million, or $0.39 per diluted
share, in the prior year period. First quarter 2011 net loss
before special items was $8.4 million, or $0.46 per diluted share,
compared to a net loss of $7.0 million, or $0.37 per diluted share,
in 2010.
Gross margin for the quarter was $1.0 million, down from $1.6
million in the first quarter of 2010 primarily related to the
aforementioned revenue decline. However, gross margin
percentage increased to 58.6 percent from 51.5 percent in the prior
year period as BookRags had a greater relative contribution to
margin in the quarter. Gross margin is calculated as the sum
of gross revenue non-directly delivered programs, gross revenue
directly delivered programs and internet content and advertising
revenue less cost of sales non-directly delivered programs, costs
of sales directly delivered programs and cost of sales internet
content and advertising. Gross margin percentage is calculated
as gross margin divided by the sum of gross revenue non-directly
delivered programs, gross revenue directly delivered programs and
internet content and advertising revenue.
First quarter 2011 operating expenses increased 11 percent,
primarily due to higher legal expenses and incremental costs
associated with both retention efforts and social media
marketing.
Other income increased slightly year-over-year due to a $0.2
million foreign currency de-designation gain related to Japanese
currency, which offset a slight decline in interest and dividend
income resulting from the lower cash balance during the
quarter. The income tax benefit increased $0.6 million driven
by the higher pre-tax loss.
It is important to note that these results are impacted by
certain events considered to be special items. This includes
the legal expense that totaled $0.5 million in the quarter and the
aforementioned de-designation of foreign currency contracts.
Included at the end of this release is a table identifying all
special items reflected in the Company's results. Not having
that disclosure may prohibit an informative comparison of results
between periods.
Balance Sheet and Liquidity
Total assets at March 31, 2011 were $167.7 million, including
$88.3 million in cash, cash equivalents and short-term
available-for-sale securities. Prepaid program costs and
expenses increased to $28.8 million primarily as a result of
accelerated airline ticket purchases and deposits in an effort to
avoid additional fuel surcharges. Long-lived assets totaled
$40.6 million reflecting goodwill and intangible assets of the
BookRags business, technology, hardware and systems used to deliver
services, and the Company's office building. Total liabilities
were $95.6 million, including $87.0 million in participant deposits
for future travel. The Company has no debt
outstanding. Deployable cash at March 31, 2011 was $23.6
million.
The Company paid a quarterly dividend of $0.06 per share on
March 15, 2011.
The following table summarizes the cash flows as further
disclosed in the accompanying financial statements. Free cash
flow, a non-GAAP measure, which is defined as cash flow from
operations less purchase of property, equipment and intangibles, is
also noted (in thousands):
|
UNAUDITED |
|
Quarter ended
March 31, |
|
2011 |
2010 |
Cash flow from operations |
$16,436 |
$33,171 |
Purchases of property, equipment and
intangibles |
(1,029) |
(1,483) |
Free cash flow |
15,407 |
31,688 |
|
|
|
Net purchase of available-for-sale
securities |
(10,453) |
(12,377) |
Dividend payments to shareholders |
(1,080) |
(1,156) |
Repurchase of common stock |
(5,327) |
-- |
Other cash flows, net |
21 |
447 |
Net change in cash and cash equivalents |
$ (1,432) |
$18,602 |
The change in cash flow from operations and in turn free cash
flow between periods was driven primarily by the change in prepaid
expenses discussed above.
Deployable cash and free cash flow are non-GAAP measures defined
in the attached schedules.
Share Repurchase Program
During the first quarter of 2011, the Company repurchased
500,127 shares for approximately $5.4 million including brokerage
fees. The remaining $0.7 million under the existing repurchase
authorization was completed in April 2011.
Subsequent Event
On April 14, 2011, an agreement was reached to settle the
pending class action lawsuit filed by Plumbers Union Local No. 12
Pension Fund against the Company and certain of its current and
former officers. Under the terms of the agreement, the
Company's insurers will cover the $7.5 million settlement. There
was no admission of any wrongdoing by the Company or the individual
defendants, and there will be no material financial impact to the
Company.
Outlook for 2011
As of April 24, 2011, enrolled revenue for 2011 travel programs
was $152.1 million, down 3 percent from the same point in 2010,
reflecting enrolled travelers of 25,031 compared to 27,061 at the
same date in 2010. Enrolled revenue for the Company's core product,
Student Ambassadors, is up 4 percent to $137.2 compared to $132.4
at the same date last year.
Enrolled revenue consists of estimated gross receipts to be
recognized, in the future, upon travel of an enrolled participant.
Net enrollments consist of all participants who have enrolled in
the Company's programs less those that have already withdrawn.
Enrolled revenue may not result in actual gross receipts eventually
recognized by the Company due to both withdrawals from the
Company's programs and expected future enrollments.
Based on the latest enrollment information, the Company is
changing its guidance for 2011 to the following:
- Consolidated gross revenues for all programs and operations to
be down 3% to flat compared to 2010;
- Consolidated gross margin as a percentage of gross revenue for
all programs and operations of 39.0% to 40.0%;
and
- Net income before any special items of between $8.0 million and
$9.0 million.
Special items for the year to date currently include legal costs
associated with class action law suit and ongoing SEC investigation
and the impact of de-designation of foreign currency
positions. A table outlining those special items is included
at the end of this release.
Conference Call and Webcast Information
The Company will host a conference call to discuss first quarter
2011 results of operations on Thursday, April 28, 2011, at 11:30
a.m. Eastern Time (8:30 a.m. Pacific Time). Participants
can access the call via the internet at
www.ambassadorsgroup.com/EPAX. The call can also be
accessed by dialing 877-718-5106 or 719-325-4776
(international) and providing the pass code:
5343639. Approximately 24 hours following the
call, a webcast will be available through July 28, 2011 at
www.ambassadorsgroup.com/EPAX. A replay of the call will
also be available through May 3, 2011 and can be accessed by
dialing 888-203-1112 and providing the pass code:
5343639.
About Ambassadors Group, Inc.
Ambassadors Group, Inc. (Nasdaq:EPAX) is a socially conscious
education company located in Spokane, Washington. Ambassadors
Group, Inc. is the parent company of Ambassador Programs, Inc.,
World Adventures Unlimited, Inc. and BookRags, Inc., an educational
research website. The Company also oversees the Washington School
of World Studies, an accredited travel study and distance learning
school. Additional information about Ambassadors Group, Inc. and
its subsidiaries is available at www.ambassadorsgroup.com. In this
press release, "Company", "we", "us", and "our" refer to
Ambassadors Group, Inc. and its subsidiaries.
The Ambassadors Group, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3541
Forward-Looking Statements
This press release contains forward-looking statements regarding
actual and expected financial performance and the reasons for
variances between period-to-period results. Forward-looking
statements, which are included per the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, may involve
known and unknown risks, uncertainties and other factors that may
cause actual results and performance in future periods to be
materially different from any future results or performance
suggested by the forward-looking statements in this release. Such
forward-looking statements speak only as of the date of this
release and may not reflect risks related to international unrest,
outbreak of disease, conditions in the travel industry, direct
marketing environment, changes in economic conditions and changes
in the competitive environment. We expressly disclaim any
obligation to provide public updates or revisions to any
forward-looking statements found herein to reflect any changes in
expectations or any change in events. Although we believe the
expectations reflected in such forward-looking statements are based
upon reasonable assumptions, we can give no assurance that our
expectations will be met. For a more complete discussion of certain
risks and uncertainties that could cause actual results to differ
materially from anticipated results, please refer to the
Ambassadors Group, Inc. 10-K filed March 11, 2011, proxy statement
filed April 12, 2011.
AMBASSADORS GROUP,
INC. |
|
CONSOLIDATED STATEMENTS
OF OPERATIONS |
(in thousands, except
per share data) |
|
|
|
|
|
|
|
|
UNAUDITED |
|
Quarter ended
March 31, |
|
2011 |
2010 |
$ Change |
% Change |
Net revenue (loss), non-directly delivered
programs (1) |
($35) |
$203 |
($238) |
-117% |
Gross revenue, directly delivered
programs (2) |
694 |
1,779 |
(1,085) |
-61% |
Internet content and advertising revenue |
1,003 |
754 |
249 |
33% |
Total revenue |
1,662 |
2,736 |
(1,074) |
-39% |
Cost of sales, directly delivered programs
(2) |
486 |
1,033 |
(547) |
-53% |
Cost of sales, internet content and
advertising |
133 |
110 |
23 |
21% |
Gross margin |
1,043 |
1,593 |
(550) |
-35% |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling and marketing |
10,095 |
9,402 |
693 |
7% |
General and administration |
4,383 |
3,694 |
689 |
19% |
Total operating expenses |
14,478 |
13,096 |
1,382 |
11% |
|
|
|
|
|
Operating loss |
(13,435) |
(11,503) |
(1,932) |
17% |
|
|
|
|
|
Other income (expense) |
|
|
|
|
Interest and dividend income |
335 |
411 |
(76) |
-18% |
Foreign currency expense and
other |
181 |
(14) |
195 |
-1393% |
Total other income |
516 |
397 |
119 |
30% |
Loss before income tax
benefit |
(12,919) |
(11,106) |
(1,813) |
16% |
Income tax benefit |
4,190 |
3,617 |
573 |
16% |
Net loss |
($8,729) |
($7,489) |
($1,240) |
17% |
|
|
|
|
|
Weighted average shares outstanding – basic
and diluted |
18,025 |
19,271 |
(1,246) |
-6% |
Net loss per share — basic and diluted |
($0.48) |
($0.39) |
($0.09) |
23% |
(1) Net revenue, non-directly delivered programs
consists of gross revenue, less program pass-through expenses for
non-directly delivered programs because we primarily engage
third-party operators to perform these services.
|
|
|
|
|
Quarter ended
March 31, |
|
2011 |
2010 |
% Change |
Gross revenue |
$ 82 |
$ 559 |
-85% |
Cost of sales |
117 |
356 |
-67% |
Net revenue (loss) |
$ (35) |
$ 203 |
-117% |
(2) Gross revenue and cost of sales for directly
delivered programs are reported as separate items because we plan,
organize and operate all activities, including speakers,
facilitators, events, accommodations and transportation.
(3) Gross margin is calculated as the sum of gross
revenue non-directly delivered programs, gross revenue directly
delivered programs and internet content and advertising revenue
less cost of sales non-directly delivered programs, costs of sales
directly delivered programs and cost of sales internet content and
advertising. Gross margin percentage is calculated as gross
margin divided by the sum of gross revenue non-directly delivered
programs, gross revenue directly delivered programs and internet
content and advertising revenue.
|
|
|
|
AMBASSADORS GROUP,
INC. |
|
|
|
|
CONSOLIDATED BALANCE
SHEETS |
(in thousands, except
per share data) |
|
|
UNAUDITED |
AUDITED |
|
March
31, |
December 31, |
|
2011 |
2010 |
2010 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$5,406 |
$26,258 |
$6,838 |
Available-for-sale securities |
82,942 |
85,764 |
72,540 |
Foreign currency exchange
contracts |
3,012 |
345 |
1,864 |
Prepaid program cost and expenses |
28,824 |
12,417 |
3,230 |
Accounts receivable |
5,321 |
5,335 |
1,976 |
Total current
assets |
125,505 |
130,119 |
86,448 |
Property and equipment, net |
27,461 |
29,022 |
27,625 |
Available-for-sale securities |
1,249 |
1,248 |
1,250 |
Foreign currency exchange
contracts |
295 |
-- |
-- |
Intangibles |
3,369 |
2,970 |
3,367 |
Goodwill |
9,781 |
6,911 |
9,781 |
Other long-term assets |
85 |
311 |
85 |
Total assets |
$167,745 |
$170,581 |
$128,556 |
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued
expenses |
$6,426 |
$6,120 |
$5,954 |
Participants' deposits |
87,008 |
81,546 |
34,436 |
Deferred tax liability |
696 |
73 |
668 |
Other liabilities |
102 |
110 |
107 |
Total current
liabilities |
94,232 |
87,849 |
41,165 |
Deferred tax liability |
1,357 |
96 |
1,353 |
Total
liabilities |
95,589 |
87,945 |
42,518 |
Stockholders' equity |
72,156 |
82,636 |
86,038 |
Total liabilities and
stockholders' equity |
$167,745 |
$170,581 |
$128,556 |
|
AMBASSADORS GROUP,
INC. |
|
|
|
CONSOLIDATED STATEMENTS
OF CASH FLOWS |
(in
thousands) |
|
|
|
|
UNAUDITED |
|
March
31, |
|
2011 |
2010 |
Cash flows from operating
activities: |
|
|
Net loss |
$ (8,729) |
$ (7,489) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
Depreciation and amortization |
1,153 |
1,135 |
Stock-based compensation |
553 |
507 |
Deferred income tax benefit |
(391) |
(92) |
Gain on foreign currency exchange
contracts |
(183) |
-- |
Loss on disposition of property and
equipment |
4 |
255 |
Excess tax benefit from stock-based
compensation |
-- |
(106) |
Change in assets and liabilities: |
|
|
Accounts receivable and other assets |
(3,345) |
(3,315) |
Prepaid program costs and expenses |
(25,594) |
(9,444) |
Accounts payable, accrued expenses, and
other current liabilities |
396 |
1,311 |
Participants' deposits |
52,572 |
50,409 |
Net cash provided by operating
activities |
16,436 |
33,171 |
|
|
|
Cash flows from investing
activities: |
|
|
Purchase of available for sale
securities |
(19,808) |
(19,774) |
Proceeds from sale of available-for-sale
securities |
9,355 |
7,397 |
Purchase and construction of property and
equipment |
(915) |
(1,244) |
Purchase of intangibles |
(114) |
(239) |
Net cash used in investing
activities |
(11,482) |
(13,860) |
|
|
|
Cash flows from financing
activities: |
|
|
Repurchase of Common Stock |
(5,327) |
-- |
Dividend payment to shareholders |
(1,080) |
(1,156) |
Proceeds from exercise of stock
options |
21 |
341 |
Excess tax benefit from stock-based
compensation |
-- |
106 |
Net cash used in financing
activities |
(6,386) |
(709) |
|
|
|
Net increase (decrease) in cash and cash
equivalents |
(1,432) |
18,602 |
Cash and cash equivalents, beginning of
period |
6,838 |
7,656 |
Cash and cash equivalents, end of
period |
$5,406 |
$26,258 |
Deployable Cash
Deployable cash is a non-GAAP liquidity measurement and is
calculated as the sum of cash and cash equivalents, short-term
available-for-sale securities, and prepaid program costs and
expenses, less the sum of accounts payable, accrued expenses and
other short-term liabilities (excluding deferred taxes) and
participant deposits. We believe this non-GAAP measurement is
useful to investors in understanding important characteristics of
our business.
The following summarizes deployable cash as March 31, 2011 and
2010 and December 31, 2010 (in thousands):
|
|
|
|
|
UNAUDITED |
|
March
31, |
December 31, |
|
2011 |
2010 |
2010 |
Cash, cash equivalents and short-term
available-for-sale securities |
$88,348 |
$112,022 |
$79,378 |
Prepaid program cost and expenses |
28,824 |
12,417 |
3,230 |
Less: Participants' deposits |
(87,008) |
(81,546) |
(34,436) |
Less: Accounts payable / accruals / other
liabilities |
(6,528) |
(6,230) |
(6,061) |
Deployable cash |
$23,636 |
$36,663 |
$42,111 |
Special Items
The Company impaired assets and incurred losses on the sale of
equipment of an immaterial amount in 2011 and $0.2 million in 2010,
primarily related to its print facility and moving those activities
to an outsourced vendor. Also in 2011, the Company recognized
a foreign currency gain from de-designating Japanese Yen contracts
totaling $0.2 million.
Lastly, as previously disclosed, the Company was party to a
shareholder class action suit and is party to an investigation by
the U.S. Securities and Exchange Commission ("SEC") more fully
described in the Company's filings with the SEC on Form 10-K and
10-Q available on the Company's website www.ambassadorsgroup.com or
at the SEC website www.sec.gov. During the first quarter of 2011
and 2010, the Company incurred outside legal costs associated with
these matters after impact of insurance recovery totaling $0.5
million and $0.2 million, respectively.
As a result of these events, the operations as presented in the
accompanying financial statements for the quarters ended March 31,
2011 and 2010 do not reflect a meaningful comparison between
periods or in relation to the operational activities of the
Company. In order to provide more meaningful disclosure, the
following table represents a reconciliation of certain earnings
measures before special items to those same items after the impact
of special items (in thousands except per share data):
|
UNAUDITED |
|
Net
Income |
EPS |
|
March
31, |
March
31, |
|
2011 |
2010 |
2011 |
2010 |
Amount before special
items |
$ (8,395) |
$ (7,027) |
$ (0.46) |
$ (0.37) |
Asset impairments and loss on sale |
(4) |
(243) |
-- |
(0.01) |
Foreign currency de-designation gain |
183 |
-- |
0.01 |
-- |
Legal fees – class action and SEC,
net |
(513) |
(219) |
(0.03) |
(0.01) |
Amount per consolidated statement of
operations |
$ (8,729) |
$ (7,489) |
$ (0.48) |
$ (0.39) |
CONTACT: Company Contact:
Tony Dombrowik
(509) 568-7800
Investor Relations:
Stacy Feit
Financial Relations Board
(213) 486-6549
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